Our very rough guide to VAT and used cars.
Before we start if you are not a VAT (Value Added Tax) registered business, for example you have a VAT number in the United Kingdom or the Republic of Ireland then this really does not apply to you, but read on if you are interested.
When we say a vehicle is “VAT Qualifying” we mean the seller has reclaimed VAT and has therefore charged VAT. A VAT Registered business can reclaim that VAT if it is used for business use. When you buy the vehicle you can reclaim the VAT if the vehicle is going to be used for your business, but must charge VAT when you sell it….. sounds complicated? We know, but read on …….
This does not mean you have to pay VAT on top of the price, it’s already included, but you can benefit from reclaiming the VAT proportion. So roughly speaking on a £10000 vehicle you get £1666.67* back on your next VAT return (or the same amount deducted) When you sell the vehicle in 3 years or so time you will have to charge VAT but as you will be selling the vehicle for less you pay less. Lets assume you sell for £4000, the VAT to be repaid is roughly £666.67* and do not forget you have had the benefit of the money in your account for the period that you own the vehicle. (* = VAT @ 20%)
Republic of Ireland
The same principal applies if a vehicle is exported to the Republic of Ireland, but we do not charge the VAT on the “screen” price so you pay 1/6th less (the £1666.67 example above) in effect paying £8333.33 This is classed as a VAT free export to ROI. There are a few things needed and these are briefly
Purchase order, or confirmation of order (i.e. email request to purchase)
Details of the route you will be taking back to Ireland (Ferry crossing number etc)
Details of your business name and ROI VAT number, plus address.
Obviously your accountant or book keeper is the person to speak to regarding this and reclaiming and we always suggest you get professional advice.
VAT Status and Used Cars.
The use to which a car is put will determine its status for VAT purposes. In turn, that VAT status will determine whether VAT should be charged on the disposal of the car and hence whether there is any VAT available for recovery in the hands of a subsequent owner. If VAT has been fully recovered on a car, that car will be “VAT qualifying”. If a qualifying car is sold VAT will be chargeable on its sale, and recoverable by the purchaser under the rules outlined above. If input VAT recovery has been restricted on a car at any point in its life, that car becomes “Non-Qualifying”. VAT will not be due on the sale of a non-qualifying car. Assuming the purchaser is registered for VAT and ordinarily entitled to recover it on other costs, VAT incurred on a car and any fitted accessories can only be recovered if that car is used exclusively for business purposes.